VFC VF Corporation

Shares of Fortune Brands Home & Security, Inc. (FBHS) reached a new 52-week high of $45.55 on Friday, Dec 27 and eventually closed trade at $44.91. The average volume of shares traded over the last 3 months was approximately 1,179K. Notably, this supplier of home and security products recorded a year-to-date return of 47.2%.

Moreover, FBHS currently trades at a forward P/E of 30.1x, a 27.5% premium to the peer group average of 23.60x. The last traded price is 2.4% below the Zacks Consensus average analyst price target of $46.00, which implies this Zacks Rank #2 (Buy) stock has further upside potential. Additionally, the company’s long-term estimated earnings per share (EPS) growth rate is 27.4%, substantially higher than the peer group average of 16.2%.

We believe that the recent appreciation in the company’s share price is mainly driven by Moody’s Corporation’s (MCO) latest announcement of a positive outlook for the U.S. consumer durable industry. Moody’s declared that consumer durable companies would witness a 5%–6% rise in operating profit in the next 12–18 months owing to recovery in the U.S. economy, signs of stability in the housing market and increased spending by consumers.

Apart from Moody’s recent forecast, we believe that the company’s record of beating the quarterly earnings expectations, an upbeat full-year 2013 earnings outlook and a decent dividend yield make FBHS an attractive option for investors.

With regard to earnings surprise, FBHS has beaten the Zacks Consensus Estimate in the trailing 4 quarters recording an average positive surprise of 16.5%. Notably, the company outperformed the Zacks numbers by 12.2% in third-quarter 2013.

FBHS reported adjusted quarterly earnings of 46 cents per share, significantly higher than the year-ago quarter figure of 29 cents and surpassed the Zacks Consensus Estimate of 41 cents. The robust bottom-line performance was primarily driven by an increase of 24% in net sales the company’s sustained focus on cost and capacity reduction initiatives, along with better price and product mix.

Buoyed by better-than-expected quarterly results and recovery in housing market, FBHS raised its outlook for 2013. For full-year 2013, FBHS now expects net sales to increase in the range of 15%–16%, against its previous forecast of 13%–15%. Similarly, FBHS now anticipates earnings per share in the range of $1.47–$1.49 versus the prior projection of $1.35–$1.43. Currently, the Zacks Consensus Estimate stands at $1.49 per share, which coincides with the company’s upper-end guidance range.

FBHS is also known for its shareholder-friendly moves. Earlier in this month, the company announced an increase in its quarterly dividend from 10 cents to 12 cents. Currently, it yields 1.1%, with a payout ratio of 19%. We believe that FBHS’ continuous dividend payments and increments reflect its ability to grow earnings and show its impressive cash flow generation capabilities.

Apart from FBHS, companies such as The Walt Disney Company (DIS) and V. F. Corp. (VFC) achieved new 52-week highs of $74.78 and $62.48, respectively, on Dec 27, 2013.

 
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